The whistleblower who claims to have held senior roles in the investment sector, has approached the SEC through a law firm.

A Washington-based law firm, representing an “anonymous whistleblower” told U.S. financial regulators that they should investigate a scheme that aims to manipulate Wall Street’s Volatility Index (VIX), which has so far cost investors from the equity market, hundreds of millions of dollars a month.

On Monday, the law firm which represents the anonymous person, told the Securities and Exchange Commission and Commodity Futures Trading Commission, that the scheme, he chanced upon, exploits a widespread flaw in the Chicago Board Options Exchange (CBOE) Volatility Index (VIX).

Incidentally, the CBOE Volatility Index measures the cost of buying options and is the most widely followed barometer of expected near-term stock market volatility.

“The flaw allows trading firms with advanced algorithms to move the VIX up or down by simply posting quotes on S&P options and without needing to physically engage in any trading or deploying any capital,” said the law firm in a letter to the SEC.

Significantly, last week, these bets against volatility suffered massively as the benchmark S&P 500 and the Dow Jones Industrial Average suffered their biggest respective percentage drops since August 2011.

As a result, investors who used exchange-traded products linked to the VIX were pummeled; Credit Suisse Group and Nomura Co Ltd have said, they would now terminate two exchange traded notes that bet on low volatility in stock prices.

Significantly, months of calm in the stock market has made the prospects of selling volatility a lucrative affair, with ETPs attracting nearly $3 billion in investment.

“We contend that the liquidation of the VIX ETPs last week was not due solely to flaws in the design of these products, but instead was driven largely by a rampant manipulation of the VIX index,” reads the letter from the law firm.

In a statement to Bloomberg, CBOE said the letter lacks credibility since it makes inaccurate statements, contains factual errors and misconceptions, including a fundamental misunderstanding of the relationship between the VIX Index, VIX futures and volatility exchange-traded products.